In 1998, Telefónica modified the shareholder remuneration policy, replacing the distribution of cash dividends with bonus issues. These operations were charged against unrestricted reserves, offering one free share for every 50 held.

These operations were carried out until the year 2003, when they were replaced by the distribution of cash dividends.

In July 2012, in an extremely challenging economic and financial environment, certain exogenous factors created severe instability. These unprecedented factors were beyond Telefónica’s control, and were crucial in order to make the Company take definitive steps to effectively defuse potential risks. Therefore, The Board of Directors decided that under the criteria of prudent administration and in the best interest of all Telefónica’s stakeholders that the dividend and share buyback program corresponding to 2012 be cancelled as a one-time exceptional measure.

In 2013, the Company brought back shareholder remuneration with a cash dividend of 0.75 euros per share, payable in two tranches. The first was paid on 6 November 2013 for the amount of 0.35 euros per share against unrestricted reserves, as approved at the General Shareholders' Meeting held in May 2013. The second tranche was paid on 7 May 2014, for the amount of 0.40 euros per share from 2014 net income.

The Board of Directors, at its meeting held on 26 February 2014, agreed, in relation to the 2014 dividend, to determine the amount thereof at 0.75 euros per share, payable in two tranches:

0.35 euros per share, in the form of "scrip dividend", (a form of dividend through bonus issues whereby the shareholder may opt to receive the entirely or part of the amount corresponding to the dividend in cash or in new shares issued by the company). In November 2014 the implementation of this "scrip dividend" was started.

0.40 euros per share was paid on May 12, 2015, in cash.

Furthermore, in the publication of the results from the second half of 2014 on 25 February 2015, the company announced that it will propose the adoption of the appropriate corporate agreements for the distribution of a dividend of 0.75 euros per share in 2015 and 2016.

To amortize treasury shares in 2015 to the total of 1.5% of shares representative of the share capital (held on July 2015) and distribute a dividend of 0.75 euros per share. This dividend will be paid in two tranches:

0.35 euros per share in the form of "scrip dividend" (Telefónica’s Flexible Dividend). In November 2015 the implementation of this “scrip dividend” was started, and

0.40 euros per share in the second quarter of 2016, in cash.

In 2016, the Company amortized Treasury stock for a total of 1.5% share capital.

In October 2016, after necessary regulatory approvals for the sale of O2 UK were not obtained, in a context of growing free cash flow and with the objective of substantially accelerating organic deleverage, Telefónica modified the dividend policy for 2016 and announced the dividend policy for 2017. This decision reflected the Company’s aim of offering attractive remuneration to shareholders with a dividend yield in line with the market and a sustainable pay-out ratio (dividend per share/FCF per share). Relating to 2016, Telefónica paid 0.55 euros per share:

0.35 euros in November 2016 in the form of "scrip dividend" (Telefónica’s Flexible Dividend). In November 2016 the implementation of this “scrip dividend” was started, and

0.20 euros in cash on December 16, 2017

Relating to 2017 dividend will amount to 0.40 euros per share:

0.20 euros on December 14, 2017 and 0.20 euros in June 2018. Both tranches will be paid in cash

The Board of Directors of Telefónica, S.A. at its Meeting held on March 29, 2017, decided to define the corresponding payment periods, so that from there on, the dividend payment in the second quarter will take place in June, and the dividend payment in the fourth quarter will take place in December, in both cases on or before the third Friday of the corresponding month.